May 09, 2019

APRA published a letter by The Australian Securities and Investments Commission (ASIC) regarding preparations for the transition from London Interbank Offered Rate (LIBOR) to alternative benchmark rates. ASIC has written to the CEOs of several major Australian financial institutions regarding their preparations for the end of LIBOR. This initiative is strongly supported by APRA and the Reserve Bank of Australia (RBA).

LIBOR is used by many Australian financial institutions in their contracts and business processes. The UK FCA has stated that it will no longer use its powers to sustain LIBOR beyond 2021. This letter is aimed to help better understand how major Australian financial institutions are preparing to transition away from LIBOR to alternative benchmarks. ASIC, APRA, and the RBA are  seeking assurance that the senior management in these institutions fully appreciates the impact and risks and is taking appropriate action ahead of the end of 2021. The financial regulators expect all institutions that rely on LIBOR to consider the impact of LIBOR transition on their business. Users of LIBOR should be aware of the size and nature of their exposures to LIBOR; put in place robust fall-back provisions in contracts referencing LIBOR; and be taking action to transition to alternative rates.

The letter states that the extent to which LIBOR may be embedded in a financial institution’s current business practices means the transition could be complex. The transition away from LIBOR may have significant implications on the entities’ risk management, operational processes and IT infrastructure. Insufficient preparations for the transition could have a negative impact on the entities’ business, clients, and the markets in which they operate.

 

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Keywords: Asia Pacific, Australia, Banking, Securities, LIBOR, LIBOR Alternatives, OTC Derivatives, ASIC, RBA, APRA

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